What is a Krugerrand?

Defining a Krugerrand is fairly straightforward, but understanding its significance may require a crash course in world economics and international politics.

A Krugerrand is a gold coin minted by the Republic of South Africa, but it would never be used to buy groceries or gas. Unlike other gold coins, the Krugerrand has no actual face value apart from its precious metal content. On the front of the coin is a profile of Paul Kruger, an early president of the Republic of South Africa. The Afrikaans words Suid Afrika appear, along with the English South Africa. The back of a Krugerrand features a male springbok, a national symbol of South Africa. There is also a date stamped in two sections on either side of the springbok image. A Krugerrand has serrated edges.

The original Krugerrand was designed to contain precisely one troy ounce of 22 karat gold, approximately 33 grams. The actual weight is a little over 1 troy ounce because a small amount of copper, about 1/12 of the total weight, is added to make the coin more resistant to damage. Because a Krugerrand is considered legal tender, it does not have to be melted down into an ingot upon resale. In 1980, three smaller sizes of Krugerrands were minted, weighing 1/2 ounce, 1/4 ounce and 1/10 ounce.

Here's where politics and economics enter the picture. The United States and other countries used to back their currency with equivalent deposits of gold -- an economic practice known as the gold standard. Over time the US treasury stopped using gold as a backup for currency, relying more on the control of circulation. The government still had vast reserves of gold, but private individuals had to rely on the stability of the national economy. Private ownership of gold in the form of bricks or ingots was strictly monitored or even forbidden under law.

Meanwhile, the Republic of South Africa had discovered a huge gold vein and was eager to market it to the world. Since private ownership of gold ingots was illegal, the South African government decided to produce a gold coin and give it 'legal tender' status. It was not illegal for US citizens to purchase foreign coins, no matter what metals were used. The South African Krugerrand could be sold at a mere 5% over the current price of gold. The South African government would benefit from the sales of its gold and investors would have a hedge against economic collapse. Because of its special content, a Krugerrand can be readily liquidated into currency in most countries.

The main concern with Krugerrand sales is South Africa's controversial history. The white minority, primarily of European stock, virtually kept the black majority under its control for decades through a segregation plan called apartheid. The Krugerrand was first minted at a time when black workers in the diamond and gold mines were treated very poorly, although racial conditions in South Africa have improved in recent years. Buying Krugerrands during the days of active apartheid could be seen as tacit approval of the practice.

Other gold coins have now emerged to challenge the Krugerrand, made with 24 karat gold and no copper alloy. It is much easier to purchase gold ingots as an investment today than it was in the 1960s. There have been an estimated 54 million+ Krugerrands sold worldwide since 1967, but its days as the only legitimate source of private investment gold are over.